When you’re unable to keep up on mortgage payments, a home loan modification might be a good option for you. Loan modifications allow you to alter the terms of your loan so that it’s easier to make payments, which is beneficial to people facing financial hardships. There are actually a few different modification options available to eligible homeowners, as explained by Debt.org.
Lowered interest rate
Some homebuyers are privy to loans with high interest rates. If a person’s financial status changes, a high interest rate can make it difficult to repay a loan, which can lead to late and missed payments or even foreclosure. It may be possible to negotiate your interest rate with your lender so it’s more manageable. In many cases, decreased interest rates are only temporary until a person is able to overcome his or her financial hardship. At that point, the original rate will become active again.
If you currently have a 15-year loan term, expanding it can help make monthly mortgage payments a bit easier to manage. 20 or 30-year terms might make it easier to make payments, but it can also cause interest rates to increase. That means you may end up paying more for the home than it’s actually worth. Lengthy loan terms can also come with pre-payment penalties, so make sure you read the fine print.
You may even be able to lower the principal for your loan. Principal reductions are usually tough to negotiate since most lenders are reluctant to lower the cost for the home. If you pursue this option, be prepared to establish your financial hardship and show how it affects your ability to continue paying your mortgage.